Act 60 Presence Test vs Tax Home vs Closer Connection

People preparing for a move to Puerto Rico tend to compress the federal residency rules into a single idea: spend enough time on the island. That is roughly a third of the requirement. Internal Revenue Code section 937 imposes three separate tests, and they measure three different things: where your body is, where your work is, and where your life is centered.

You have to satisfy all three for the same tax year. They fail independently.

Test one: presence

The presence test is the only one of the three decided by arithmetic. IRS Publication 570 gives five alternative conditions, and meeting any one of them satisfies the test:

• At least 183 days in Puerto Rico during the tax year
• At least 549 days in Puerto Rico over the current tax year and the two preceding years, with at least 60 days in each of the three years
• No more than 90 days in the United States during the tax year
• No more than $3,000 of United States earned income, plus more Puerto Rico days than United States days
• No significant connection to the United States during the tax year

The counting rules have their own detail, including the treatment of arrival days, medical absences, disaster absences, and a limited allowance for travel outside both Puerto Rico and the United States. Those are covered in the 183-day rule, explained and what counts as a day in Puerto Rico.

What matters here is the boundary: the presence test is about days and nothing else. It does not ask why you were somewhere, where you worked from, or what you own.

Test two: tax home

You satisfy the tax home test if you did not have a tax home outside Puerto Rico during any part of the tax year. Note the wording. It is not a majority test or a balance test. Any part of the year with an outside tax home breaks it.

Publication 570 says tax home is generally determined under the principles of section 911(d)(3) and section 162(a)(2), the rules about traveling expenses while away from home. In practice:

• Your tax home is your regular or main place of business, employment, or post of duty
• Where you keep your family home does not control the answer
• If the nature of your work means you have no regular or main place of business, your tax home is where you regularly live
• If neither applies, you are an itinerant and your tax home is wherever you work

For a founder or investor who relocates, the question becomes: where is the business actually run from? An office lease in Austin you visit monthly, a team reporting to a mainland headquarters, and a role described as running it all point toward an outside tax home even if you sleep in San Juan.

Publication 570 records two exceptions. Days you were temporarily in the United States as a student, and days serving as an elected representative or full time official or employee of the territory government, are disregarded in determining whether you had an outside tax home. A separate rule provides that employment on a vessel used predominantly in local and international waters does not by itself create an outside tax home.

Test three: closer connection

You satisfy the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or to a foreign country than to Puerto Rico. Again, note "during any part."

This is the softest of the three and the hardest to plan around, because it is decided on facts and circumstances rather than a threshold. Publication 570 lists factors including:

• The location of your permanent home
• The location of your family
• The location of personal belongings such as cars, furniture, clothing, and jewelry
• The location of social, political, cultural, professional, or religious organizations you currently belong to
• Where you do your routine personal banking
• Where you conduct business activities outside those that determine your tax home
• The jurisdiction that issued your driver license
• The jurisdiction where you vote
• The location of charities you give to
• The country of residence you designate on forms and documents
• The types of official forms you file, such as Form W-8BEN or Form W-9

Your Puerto Rico connections are compared against the total of your United States and foreign connections. One useful detail: territories are generally not treated as foreign countries, so a closer connection to another territory is not treated as a closer connection to a foreign country.

Publication 570 includes an example of a person who moved to Puerto Rico to start an investment business and kept an apartment there for full time use, but left a spouse and teenage children in California, stayed a joint owner of the California home, kept belongings at both residences, banked in California, and held a California driver license and voter registration. The conclusion was that this person was not a bona fide resident, because the closer connection ran to the United States. Nothing in that example turns on day counts.

How the three interact

A few consequences follow from having three independent tests.

Strength in one does not offset weakness in another. Two hundred and ten days on the island does not repair a Manhattan tax home.

The tests have different time shapes. Presence is measured across the whole year and can be satisfied by any of five conditions. Tax home and closer connection are violated by any part of the year that goes the wrong way.

Only two of the three get year-of-move relief. Publication 570 provides that you satisfy the tax home and closer connection tests in the year you move to Puerto Rico if you were not a bona fide resident there in any of the three preceding tax years, you have no outside tax home and no closer connection to the United States or a foreign country during any of the last 183 days of the move year, and you are a bona fide resident for each of the three tax years immediately following. The presence test is not part of that relief. See moving mid-year: your first partial year.

Evidence differs by test. Presence is proved with travel records. Tax home is proved with employment, entity, and workplace facts. Closer connection is proved with the texture of your life: leases, registrations, memberships, bank accounts, where your things are. A file containing only flight itineraries answers one third of the question. How to document presence for an audit goes through what a complete file looks like.

Where a tracker fits

One83 is built around the part of this that is countable. It maintains your Puerto Rico and United States day-by-day records, evaluates all five presence conditions continuously, and warns you before a planned trip crosses a line. It does not decide your tax home or weigh your closer connection factors, because those are judgment calls that belong to you and your advisor.

Most people land on the same sequencing: get the day count under control first, because it is the test you can lose by accident, then work through the tax home and closer connection facts deliberately in the first year rather than the third.

Frequently asked questions

Do I have to pass all three tests?

Yes. Section 937 requires the presence test, the tax home test, and the closer connection test to be satisfied for the same tax year. Failing any one means you are not a bona fide resident for that year, no matter how strong the other two are.

What is a tax home?

Your regular or main place of business, employment, or post of duty, regardless of where your family home is. If your work gives you no regular place of business, your tax home is where you regularly live. If neither fits, you are an itinerant and your tax home is wherever you work.

How is the closer connection test decided?

On facts and circumstances rather than a formula. Publication 570 weighs where your permanent home and family are, where your belongings are, where you bank, which jurisdiction issued your driver license, where you vote, and the address you list on official forms. Your Puerto Rico connections are compared against the total of your United States and foreign connections.

Can I pass the presence test and still fail bona fide residency?

Yes, and it is a common outcome. The Publication 570 example above turns entirely on closer connection facts, not on day counts.

Is there any relief for the year I move?

For the tax home and closer connection tests only. The presence test still has to be met on its own terms. See moving mid-year: your first partial year.

Disclaimer

One83 is a presence tracking tool, not a tax advisor, and this guide is general information rather than tax advice. Whether you qualify as a bona fide resident depends on your specific facts. Consult a licensed tax professional familiar with Internal Revenue Code section 937 and Puerto Rico Act 60, and see IRS Publication 570 for the official rules.